The Investment Column: Oil stocks
Tuesday 28 September 1999
It appears not. True, equity markets are coming under pressure because of fears that interest rates will rise. But the integrated oil companies are well placed to benefit from the synchronised GDP growth the world is expected shortly to deliver. In the meantime, winter will see the usual seasonal pickup in demand for crude.
So why the profit-taking? Oil prices cannot be sustained at these levels. Warburg Dillon Reed, for example, sees an average price of $18.50 next year, steadying at $16 thereafter. The fear is that the return to such levels will be sudden, and so will the falls in the price of the integrateds. That fear seems misplaced. Opec's disciplined stance on production limits continues. The expected increases in crude demand should enable it to relax those limits in a managed manner, without prompting a crash. In any case, BP Amoco and Shell are now entities that can cope in a lower oil price environment. Analyst see the shares at current levels as good value even assuming a return to cheap oil.
Meanwhile, the completion of BP Amoco's takeover of Arco will mean funds will have to increase their weighting in the stock. And Shell's on-going restructuring programme will continue to generate good newsflow. At 1094p and 456p, both BP Amoco and Shell are looking oversold.
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